SINGAPORE (Reuters) - Singapore home prices softened in the third quarter, with some analysts predicting further declines in prices of government-built Housing and Development Board (HDB) apartments as recent credit restrictions on home buyers began to hurt demand.
Governments in the region have been trying to cool bubbly housing markets with limited success due to the low interest rates environment brought about by quantitative easing in developed countries.
In Australia, for example, home prices in major cities jumped to a record high in September, according to property consultant RP Data-Rismark, while new rules went into effect in New Zealand on Tuesday to limit risky home lending.
According to flash estimates released on Tuesday, resale prices of HDB apartments in Singapore fell for the first time in over four years, with the index dipping 0.7 percent in the July-September quarter from the preceding three months.
HDB apartments house around 80 percent of Singapore’s 5.4 million people.
The Urban Redevelopment Authority’s index of private home prices edged 0.4 percent higher in the third quarter from the second as prices of homes in outlying areas rose. But prices of apartments in the core central region fell 0.5 percent while prices in the rest of the central region dropped 1.1 percent — the first decline in one-and-a-half years.
Analysts attributed the weakness in third quarter home prices to measures introduced between late June and August this year that capped the amount of loans that can be extended to the borrowers’ income. While private home prices could hold at current levels, HDB resale prices are likely to fall in coming quarters.
“The reduction of the mortgage servicing ratio to 30 percent of a borrower’s gross monthly income has taken its full effect on resale prices,” said PropNex Realty CEO Mohamed Ismail. Previously, HDB buyers could use up to 35 percent of their monthly income to service their housing loan.
Other factors affecting demand for resale HDB apartments include the greater availability of new units as well as new restrictions on HDB purchases by foreigners with permanent residency status.
“Moving into 2014, the HDB resale market can expect negative price growth possibly at the range of negative 3 to 5 percent,” Ismail added.
Chia Siew Chuin, director of research and advisory at Colliers International in Singapore, said that while cheaper mass-market homes outside the central region continue to attract buyers, overall affordability has been affected by the government’s cooling measures.
“Consequently, some developers have responded by fine-tuning selling prices,” she said.
Buying interest in Singapore private homes weakened sharply in July after the central bank introduced rules to ensure that monthly mortgage payments do not exceed 60 percent of buyers’ combined incomes, prompting companies such as City Developments Ltd (CTDM.SI) and CapitaLand Ltd (CATL.SI) to offer discounts on some projects.
Capital Economics, in a report earlier this week, said many Asian economies have seen sharp increases in home prices, and that prices in Hong Kong, Taiwan and Singapore had grown much faster than incomes.
While price gains in Singapore have slowed in recent quarters thanks to the aggressive macroprudential measures by authorities in the city-state, they continue to rise by an double-digit, annualised pace in both Hong Kong and Taiwan.
“Relative to incomes, property prices in Hong Kong now look as overvalued as they did before the crash of 1997, when prices fell by nearly 70 percent peak to trough,” it said.
Taiwan’s central bank warned mortgage borrowers last week to watch out for risks if interest rates change.
Reporting by Kevin Lim; Editing by Kim Coghill